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Household demand and welfare: implications of water pricing in Cyprus

Published online by Cambridge University Press:  02 October 2002

Soteroula Hajispyrou ,
Phoebe Koundouri  and
Panos Pashardes
Soteroula Hajispyrou
Affiliation:
University of Cyprus, Nicosia 1678, Cyprus. E-mail: [email protected]
Phoebe Koundouri
Affiliation:
University of Reading, Reading RG6 6AA, UK and University College London, London WC1E 6BT, UK. E-mail: [email protected]
Panos Pashardes
Affiliation:
University of Cyprus, Nicosia 1678, Cyprus. E-mail: [email protected]
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Abstract

This paper considers a model of household demand for water in a theoretical framework consistent with fundamental principles of consumer behaviour. It applies this model to individual household data to estimate the price and income elasticities of residential demand for water in Cyprus and evaluate the welfare effects associated with changes in the water pricing system. We find that the current regionally heterogeneous, increasing block-pricing system introduces gross price distortions that are not justified on efficiency grounds. A shift towards uniform marginal cost pricing will eliminate the deadweight loss of the current system. However, its benefits will be distributed in favour of the better-off households.

Keywords

Residential water demandincreasing block pricingconsumer welfarewater management
Type
Research Article
Information
Environment and Development Economics , Volume 7 , Issue 4 , October 2002 , pp. 659 - 685
Copyright
© 2002 Cambridge University Press

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Footnotes

We would like to thank the University of Cyprus for financial support and the Department of Statistics and Research for making available the Cyprus Family Expenditure Survey data. We are solely responsible for the interpretation of the data and all errors.